“It’s a good-faith effort, but we are a long way from
developing a package that everyone can sign on to,” said
Catherine Schultz, vice president for tax policy at the trade
group, which advocates expanded international commerce. “You
would not get a lot of the business community supporting this if
this was a final draft.”

The debate over foreign income is a preview of how
difficult a tax overhaul, which both political parties say they
want, is going to be. While many -- though not all -- companies
know they don’t like what Camp proposes, they don’t agree about
how to fix it. What some companies call fair others see as
unjustified, depending on what line of business they are in and
how their global operations are organized.

“There are a few Veruca Salts who want it all and want it
now,” said Camp, comparing a minority of companies to the
fictional spoiled rich kid from the book and movie “Charlie and
the Chocolate Factory.”

Offsetting Gain

In many cases, tighter rules on moving income to low-tax
countries such as Bermuda would offset much of the gain from the
exemption Camp is proposing.

U.S. multinational companies, including Google Inc., Cisco
Systems Inc., and Forest Laboratories Inc., save billions of
dollars in taxes annually by shifting profits into subsidiaries
in tax havens, often using techniques with nicknames like
“double Irish” and “Dutch sandwich.”

Under current law, U.S. companies owe the 35 percent U.S.
corporate tax rate on all the income they earn around the world.
They get credits for tax payments to foreign governments, and
they don’t pay the U.S. anything until they bring the money
home.

Camp, the U.S. Chamber of Commerce and Republican
presidential candidate Mitt Romney say the U.S. tax system makes
it harder for American companies to compete internationally with
businesses from the U.K., Germany and Japan whose home countries
don’t impose additional taxes on foreign profits.

President Obama

President Barack Obama contends the tax code already
provides incentives to move business offshore. He wants to deny
tax deductions for the cost of moving production abroad and make
it harder for companies to defer U.S. taxes on overseas income.

“It still makes no sense for us to be giving tax breaks to
companies that are shipping jobs and factories overseas,” the
president said May 30.

The plan offered by Camp, a Michigan Republican, assumes
the corporate tax rate will drop to 25 percent from 35 percent,
and it would give companies a 95 percent exemption on their
foreign income. The plan has three options to keep companies
from eroding the U.S. tax base by shifting income overseas, and
that’s what has prompted much of the business reticence.

Not Popular

“The base-erosion provisions have not been particularly
popular,” said Pamela Olson, deputy tax leader at
PricewaterhouseCoopers LLP in Washington. Companies are trying
to come up with an alternate proposal though it is a “tortuous
path,” she said.

Camp, 58, said in a statement that companies should be
realistic and understand the choice is between Republicans’
“pro-growth reforms” and “massive tax hikes the president and
Democrats are talking about.”

Most companies realize a tax plan must “balance the need
of raising the same level of revenue with reforms that make us
more competitive and lead to stronger economic growth, and that
includes necessary safeguards,” he said.

Dave Cote, chairman and chief executive officer of
Honeywell International Inc., based in Morris Township, New
Jersey, said in a statement that the company supports Camp’s
efforts.

Prohibit Abuse

“We applaud the chairman’s invitation to the business
community to provide feedback and recognize that the legislation
will include provisions to prohibit abuse and maintain a U.S.
corporate tax base,” Cote said. He said the plan needs to
“serve both American business competitiveness and the need to
preserve tax revenue in order to address our growing national
deficit and debt issues.”

Camp’s plan would offset the tax revenue lost from the 95
percent exemption. Some would be made up by requiring companies
to pay taxes on more than $1 trillion in overseas profits they
accumulated earlier and haven’t brought home.

Part would come from Camp’s options for making it tougher
for companies to gain an advantage by shifting income to a
lower-tax country. One idea, borrowed from the Obama
administration, would tax excess profits -- as defined by the
government -- from companies’ intangible overseas assets, such
as patents and trademarks. A second, modeled after a Japanese
law, would exempt overseas income from U.S. taxes if a company
paid at least 10 percent in foreign taxes.

Third Option

The third alternative would set a 15 percent tax rate on
international income from all intangible assets. If a country’s
effective tax rate isn’t at least 13.5 percent, the company
would have to immediately pay enough U.S. taxes to bring the
total to 15 percent.

For example, a company that earns $1 million from
intangible assets in Ireland, which has a 12.5 percent tax rate,
would pay $125,000 to Ireland and $25,000 immediately to the
U.S.

“We’ve got to be overseas and we’re trying to be
profitable and compete,” said Dorothy Coleman, the trade
group’s vice president of domestic and economic policy. “The
goal is not to erode the U.S. tax base. The goal is to be
competitive and be part of the global economy.”

Semiconductor Industry

“We urge the committee to look at other countries and
explore how these proposals would fit within the norms of
international taxation, and how these proposals fit within a
goal for a competitive tax system,” Bill Blaylock, vice
president and senior tax counsel at Texas Instruments Inc.,
wrote on the group’s behalf. “It appears to us that they would
not fit.”

The semiconductor group’s letter said Camp’s three options
would lead to disputes over how to define income from intangible
assets and calculate effective tax rates.

Camp and Obama understand how companies are trying to
reduce their taxes by taking advantage of lower-taxed
jurisdictions, said Reuven Avi-Yonah, a law professor at the
University of Michigan in Ann Arbor.

Businesses don’t like Camp’s approach “for precisely the
reason that I like it,” Avi-Yonah said.

‘Hopeful Area’

Camp’s base-erosion proposals represent “a very important
and very hopeful area of consensus,” Jason Furman, the deputy
director of the White House’s National Economic Council, said at
a May 17 National Tax Association conference.

Executives from some companies, including Intel Corp.,
Praxair Inc. and United Technologies Corp., say they can
tolerate the base-erosion provisions, in part as a way to get
the 95 percent exemption on overseas taxes.

“You look at each provision and you find something good or
bad about it, but in totality we look at the entire proposal,”
said Tobin Treichel, a tax vice president at United
Technologies (UTX), the maker of Otis elevators and Pratt & Whitney
aircraft engines.

Treichel called Camp’s third option “more refined and more
targeted” than the second option. His company relies on
intellectual property based in the U.S., while high-tech
companies have moved such assets out of the country and would be
more likely to face higher taxes under the third alternative.

Business Roundtable

The Business Roundtable, an association of chief executives
of the largest U.S. companies, wants to ensure that the rules
don’t put U.S. companies at a disadvantage, said Matt Miller, a
vice president at the group.

“None of our trading partners have such broad rules that
have such broad application, so that’s kind of the concern,” he
said.

Coleman, of the manufacturers’ group, said companies are
studying how the proposal may affect international operations
established under today’s rules.

“It’s a work in progress,” she said, “and that’s the way
we viewed it.”